The $250 Billion Digital Volcano: Dormant No More · Mobile internet users (June 2016) – Top 5 countries globally (Mn) 10 The $250 Billion Digital Volcano: Dormant No More Note:

April 2017

The $250 Billion Digital Volcano: Dormant No More By 2020, India’s internet industry is expected to double from today’s $125 Billion, growing to 7.5% of the GDP

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Re-imagining the Indian economy

Decoding the burgeoning demand for internet

Digital India story set to come alive

THE EXPLODING LAVA

INSIDE THE MAGMA CHAMBER

ON THE EDGE OF THE CRATER

18 3206

CONTENTS

Digital adoption in India has been growing rapidly

While in the last 3 years Smartphone users in India have gone up ~4 times, mobile internet users have grown to ~391 Mn – making India the second1 highest country. However, high speed internet users have been limited to only ~56%. As a result, average data consumption per user continues to be low standing at less than 1 GB data per month, vis-a-vis developing economies like Indonesia and Brazil at 2–3 GB/month and developed economies like Japan and US at 9–11 GB/month.

Three key forces are coming together to unlock the latent digital demand

By 2020, 4G enabled devices are expected to grow 6 times to ~550 Mn devices, constituting ~70% devices in use. At the same time, reliable high

speed data is becoming both ubiquitous (4G availability already ~72%, ahead of more developed economies like Germany and UK) as well as mass affordable (data rates have reduced to less than one-third in just 4–5 months). Moreover, digital content is proliferating as well as improving in quality, thus driving consumption. Mobile internet users are expected to nearly double from 391 Mn today to 650 Mn by 2020 while data consumption per user is estimated to grow 10–14 times to reach 7–10 GBs/month.

India’s internet economy expected to double to become ~USD 250 Bn by 2020

The internet economy is becoming a major contributor to GDP, and is expected to grow to ~7.5% of the country’s GDP by 2020 vis-à-vis the current ~5%. E-commerce and financial

services are projected to lead the growth. For instance, share of digital payment transactions could more than double to go up to 30–40% by 2020.

Digital economy will have a much broader influence beyond the direct economic impact

Digital adoption will deliver several citizen-centric social benefits like enhancing ease of doing business, improving access to services and products and transforming governance. Adapting to change, for instance the impact on jobs, will be critical to the digital transformation.

EXECUTIVE SUMMARY

1. As of Jun 2016.Note: Reported internet users in India was 329 Mn in Jun 2016, 345 Mn in Sept 2016 and 391 Mn in Dec 2016.

ON THE EDGE OF THE CRATER

Digital India story set to come alive

High speed mobile internet adoption expected to surge from today’s ~56% to ~85% of total mobile internet user base by 2020

The $250 Billion Digital Volcano: Dormant No More8

Over the last few years, India has experienced phenomenal digital adoption

The last decade has seen India embracing technology, with digital making inroads into all walks of life

and reaching more and more Indians each year. India’s digital narrative has been largely small screen led, with the mobile becoming the first source of accessing internet in India, surpassing computers and laptops. Mobile penetration has increased by leaps and bounds percolating to the grassroots, with almost 700 Mn mobile phones in operation today in India. At present, ~65% of these are feature phones, with an average price tag of ~INR 1,000. The ~250 Mn Smartphones form the premium end of the market with an average price of ~INR 8,000.

Empowered with devices, Indians are increasingly doing more than just calling on their handsets. One in every four Indians today accesses internet on the mobile phone, summing to almost

391 Mn mobile internet users – which for perspective is bigger than the population of the US today. However only half of these (~218 Mn) are able to access high speed internet, while the remaining 173 Mn users online on feature phones are constrained by the device capability and internet speed.

The digital wave so far has started whetting the data appetite of the upper fraction of the Indian economic pyramid. What started with the early adopters like the youth who are more familiar with technology, has now proliferated to their parents and even grandparents. Social networking and messaging have been the biggest application enablers to inducing and more importantly sustaining adoption. Online media and entertainment is also beginning to gain traction with users listening to music, watching movies, trying out gaming etc.

While the trajectory is nothing short of phenomenal, mass adoption and innovation at scale will be the next and critical step in achieving the digital India ambition.

Note: Smartphone users and data consumption figures are as on Dec 2013 and Sept 2016. Mobile Internet users and mobile broadband users are as on Dec 2013 and Dec 2016.Source: IDC, TRAI, BCG Analysis.

On the Edge of the Crater 9

Data consumption per user (MBs/month)

Mobile internet users(Mn)

Mobile broadband internet users

Smartphone users(Mn)

728391~250

201620162016

240

220

66-69

201320132013

~4x ~1.8x ~3x

India has already become the second largest country by mobile internet users globally

Mobile internet users (June 2016) – Top 5 countries globally(Mn)


Note: For India, the figures are as reported by TRAI; For other countries, internet users as reported by ITU. *Number of mobile internet users in India increased to 345 Mn in Sept 2016 and 391 Mn in Dec 2016. Source: Internet World Stats, ITU, TRAI.

China

721

India

329*

USA

286

Brazil

139

Japan

115

Bearing testimony to India’s digital emergence is the fact that India

today ranks 2nd globally in the number of internet users, behind only China. As of late 2016, WhatsApp had ~160 Mn monthly active users in India, making India its biggest market globally. Facebook had ~155 Mn monthly active users in India as of mid 2016, second only to the US. Professional networking platform LinkedIn had ~37 Mn users, making India its second biggest market after the US.

However, internet consumption continues to be low when compared with global peers

Though the number of internet users has proliferated, usage still

remains low when compared to global peers. Low fixed line broadband coverage, high proportion of feature phones amongst the mobile handsets in use (unable to support high speed data access) and high data prices have been some of the key contributing factors. As an outcome, most online consumption today is restricted to basic applications like communication, search and shopping which are non-data intensive.

Source: Ovum, Internet World Stats, ITU, TRAI, PQ Media, “China Internet: There’s time enough but none to spare”, Bernstein, BCG Analysis.


Mobile (cellular + WiFi) data consumption per user – 2016 (GBs/month)

China IndiaUSA BrazilJapan

2−38−109–11 1.5−2 0.5–1

Three forces are now opportunely synergizing to unlock internet consumption in India

DeviceEcosystem

InternetConnectivity

OnlineContent


While the latent digital demand has been building up for a

while, a combination of multiple factors is coming together opportunely to unleash it. The device landscape is maturing quickly, with better and more affordable devices inundating the market. At the same time, high speed internet has become widely and reliably available, as well as mass affordable. Recent events are driving digital payments, bolstering digital adoption across the country. Simultaneously, digital content is proliferating with more players entering the space producing superior content, driving consumption.

4G enabled devices at

affordable prices

Growth in quantity and

quality of online content

High speed reliable and affordable

internet access

The Indian internet economy is set to transform with 550 Mn high speed internet users – ~85% total mobile internet user base by 2020

Note: Mobile internet users and high speed mobile internet users figures are as on Dec 2013 and Dec 2016.Source: TRAI, BCG proprietary data, BCG Analysis.

Mobile internet users (Mn)

High speed mobile internet users (Mn)Recent disruptions in the telecom space have provided a strong impetus to digital

adoption in India, accelerating the rate by at least a few years. While the total number of mobile internet users is expected to grow in line with previous estimates to almost 650 Mn by 2020, high speed internet access hitherto constrained is expected to proliferate with ~550 Mn mobile broadband users by 2020. This can prove to be a huge boost for the internet economy. Data consumption is set to dramatically expand to ~7–10 GB per month per user from the current ~700 MB per month per user, ~12 times the current consumption in just 4 years.


2016

391

218

2013

220

40

2020

650

550(~85%)

(~56%)(~20%)

(xx) % of high speed mobile internet users

Consumption of these high speed internet users by 2020 could exponentially increase from ~0.7 GB per month to 7–10 GB per month


The amount of data consumed online is driven primarily by three factors. Time spent online

directly translates into quantum of online activity, and therefore has a direct bearing on data consumption. Since video consumption (in any form) is the most data intensive activity, the mix of online activities, or put simply the share of video-heavy activities the user engages in is another key factor. Lastly, the resolution or form factor of media consumed online impacts the data consumption.

With increasing adoption Indian users are spending more time online, engaging in more data heavy use cases like online media and entertainment. Even social networking which has hitherto seen the highest adoption amongst Indian consumers is becoming more data intensive

thanks to increased video usage – e.g. Facebook’s video auto-play feature on the timeline. Furthermore, as network speeds improve, both content providers and consumers become more conscious of video quality and resolution. For instance, Google has recently rolled out a new update for its YouTube app for iOS, bumping up the maximum video resolution from 720p to 1440p.

These trends are in line with those observed in advanced economies like the US. Data consumption in India has the potential to increase almost 10–14 times from 0.7 GB currently to 7–10 GB per user per month by 2020.

Time spent

Mix of online activities

(share of video)

Resolution/ form factor

Explosion in digital consumption driven by shift in supply paradigm and new demand use cases


Note: Mobile data consumption considered. 0.7 GB/user/month consumption reported for Sept 2016; ~0.5 GB/user/month in Jun 2016.Source: BCG proprietary data, PQ Media, TRAI, BCG Analysis.

All figures per user

20202016

Timespent

Mix of online activities(share of video)

1x

1x

1x

3–4x

~1.5x

2–2.5x

~0.7GB/user/month

7–10GB/user/month

Resolution/form factor

10–14x

High speed internet consumption at scale can enable mass adoption of numerous use cases for the first time

e-HEALTHINFORMATIONPrevention, cure and symptoms

CYBER MEDICINERemote treatment via video calling

CONSULTATIONRemote assistance through telecare

DISCOVERYSearching local medical service providers

ELECTRONIC HEALTH RECORDSCloud based medical history


1. Massive open online coursesXX - Present use caseXX - Future use case

For long now, numerous applications of the internet have been touted to take off, but mass usage has

been largely limited to basic search, networking and messaging. One of the biggest impacts of the pervasiveness of high speed internet would be the digital evolution of industries creating new use cases hitherto deemed futuristic.

Health, e-commerce, education, travel & hospitality and media & entertainment are some of the key sectors to be impacted by the digital evolution. Apart from revolutionising the way we access services in each of these, for instance virtually consulting your doctor via video sitting at home, this will have far reaching impact like bringing quality primary healthcare to Indian hinterlands through remote assistance, creating and accessing health records of the poorest, etc.

Similarly, e-education could bring teaching to villages struggling with basic physical infrastructure, or at the very least augment it to ensure its effectiveness. Scale and convenience would be some of the key mantras of the internet economy.

e-EDUCATION

e-COMMERCE MEDIA & ENTERTAINMENT

BOOKSOnline book purchase/reading

DOWNLOADED CONTENTStored for uninterrupted viewing

VIRTUAL CLASSROOMSLive interactive lectures conducted virtually

UBIQUITOUS CONNECTIVITYWatch a movie anywhere – even in a car or a train

TESTINGMocks, question papers and quizzes

ONE POINTMedia delivered solely through the internet; dish/cable not required

MOOCS1

Distance education courses delivered online

ONLINE STREAMINGLive and pre-recorded content

ON-DEMAND ASSISTANCEDoubt clarification anytime anywhere

SEARCH AND DISCOVERYInformation and purchase selection

3D TRIALSPre-purchase virtual products trail

LOW TICKET TRANSACTIONSLow to mid ticket online purchases

HIGH TICKET TRANSACTIONSHigh ticket frequent online purchases

VIRTUAL EXPERIENCESLive event experiences through virtual reality


INSIDE THE MAGMA CHAMBER

Decoding the burgeoning demand for internet

Disruptions in the device ecosystem (4G Smartphones to grow ~6 times by 2020), internet connectivity (4G 3-4 times faster than 3G) and online content spaces are converging to drive digital adoption

Recap: Understanding the three forces driving internet adoption in India today


DevicesEcosystem

InternetConnectivity

OnlineContent

4G enableddevices at

affordable prices

High speed reliable and affordableinternet access

Growth in quantity and quality ofonline content

Inside the Magma Chamber 21

India’s device ecosystem is leapfrogging by 2–3 years with 4G phones becoming synonymous with Smartphones

Smartphones, especially high speed internet compatible Smartphones have largely

been unaffordable, with feature phones still forming the majority of handsets in use. However devices are set to leapfrog a few years by phasing out 3G phones ahead of earlier estimates and becoming completely 4G enabled by 2018. With the emergence of 4G enabled feature phones, high speed internet access could go up even further becoming almost completely ubiquitous for all mobile phone users. Hyper competition in the devices space is continually driving the handset prices down, with each new slew of models offering more for same or less.

3G Smartphones projected to phase out by 2018 – replaced by 4G Smartphones inundating the market

Installed base (Mn)

~550

~90

2016 2020

4G Smartphones

6x

~610

~250

2016 2020

Non-4G Phones

-2.5x

Source: IDC, Expert interviews, BCG Analysis.

High speed internet is becoming ubiquitous with 4G access across the country like never before


In addition to a remarkable ~72% 4G coverage, India is also witnessing record mobile

broadband speeds in recent times, with the fastest operator clocking almost ~16 Mbps in March 2017. Average data speed in the country is going up thanks to increasing 4G adoption. As speed improves, experience of consuming digital content improves, thereby providing an impetus to overall data consumption. An average 4G user is typically found to consume almost 16 times the data consumed by a 2G users. For instance, 2G users at 0.014 Mbps are mostly unable to stream movies while 3G users at 3-5 Mbps speed presumably manage with some lags. However with 4G, users should be able to seamlessly stream live content and make video calls on the go.

Comparison of 4G

availability across select

countries

Data consumption

per user globally (2016)

Speed (Mbps) 0.014 3–5 5–20Source: Opensignal, Expert interviews, BCG Analysis.

India is already ahead of several more economically

advanced nations

96%

SouthKorea

92%

Japan

74%

China

72%

India

81%

USA

57%

58%

Germany

UK

49%

Russia

54%

Brazil

2G User 3G User 4G User

16x

Until recently, internet access and use was restricted to only the more privileged

segments of the Indian society. Price of data when measured with respect to incomes (indicator of affordability) was significantly higher than global peers. However, recent events and a fiercely competitive telecom market have brought down data rates to less than one-third in a short span of just 4–5 months. This is fundamentally transforming high-speed data usage from a privileged benefit to a mass commodity – accessible by all.

Data tariffs in India compared to other marketsAnnualized realized tariffs per GB of data as a % of GNI per capita (2015)

“Mass affordability” of high speed data is becoming the game changing catalyst driving adoption at scale


1.9%

China

1.0%

Brazil

0.4%

UK

0.3%

USA

1.4%

Indonesia

0.2%

Russia

2.6%

India

0.5–0.9%

India 2017

Source: Analysys Mason, BCG Analysis.

Case study: 100 Million Indian users consumed ~10 GB data per month per user exhibiting high latent demand

High speed free data offered to customers for a period of 7 months along with free content applications like media and entertainment, news etc.

Over a very large sample set of ~100 Mn users, it was observed that an Indian cousumer can use on an average 10 GB data per month when offered at affordable rates.

Observations from the recent development in the telecom industry

In September 2016, the Indian telecom industry saw the entry of a new challenger telco which for the

first time offered free high speed data to customers. This saw widespread adoption, not only adding ~100 Mn internet users in under 120 days, but also exploding the amount of data consumed to unprecedented levels. New and existing mobile internet users alike for the first time had access to unconstrained data, and made the most of it as seen by the total data usage. This pilot among its many firsts gave us a glimpse of the enormous latent demand for data in the Indian consumer market, inducing online trial and adoption amongst users. Some of the most popular online use cases for new adopters were watching and downloading videos primarily driven by media and entertainment, and making video calls. This is in line with the trend observed in developed markets, where video consumption is one of the most salient online use cases.

Source: Press releases.


1. For ~100 Mn consumers on new entrant’s network.

Exponential increase in data usage Average data consumption per user1


GB/month

Key activities tried for the first time on the mobile(% users trying the activity for the first time) 42

312824

1411

Videoonline

Videodownloads

Videocalls

Onlinemusic

Musicdownloads

Gaming

0

2

4

6

8

10

Oct

-16

Sep-

16

Jun-

16

Nov

-16

Mar

-16

Dec

-16

Sep-

15

Jun-

15

Dec

-15

Jan-

17 …

12–14x consumption to 8–10 GB/month within 3–4 months 12–14x

As availability of digital content is surging...


More digital content providers

Increased relevance for

different segments

Diversification of content

formats

Proliferation of distribution

channels

OTT players growingbacked by content

partnerships

Content for nichesegments (e.g. children)

coming up

Short-form “snackable”content more popular -

driving growth

Content aggregation,third party and direct

distribution

Online content consumption

growing exponentially

Increasing stickiness in

online viewers

Viewership of digital content is on the rise

Users spending moretime online consuming

more media

Fresh and relevantcontent inducingrepeat behaviour

Vernacular contentproviding a boost to

expand reach

Digitaladoption

Content availability

… a commensurate increase is being observed in digital adoption

Amazon India has inked deals with Dharma Productions and Vishesh Films to stream their movies on Amazon Prime

Viacom18’s Voot has patnered with Turner to become the largest online destination for kid’s content in India

Star India’s Hotstar has partnered with Disney India to showcase the studio’s greatest hits exclusively on Hotstar

Digital entertainment company Hungama has partnered with British company ITV Studios, which produces content for channels like BBC, Channel 4 and Sky

Netflix has entered into a 3 year deal with Shah Rukh Khan’s production house Red Chillies Entertainment to stream both upcoming as well as past films

5 billion

Average number of videos Indians consume in a month

Content partnerships on the rise as players look to leverage synergies

88%Growth in video traffic on mobile from 2014 to 2015

50%Movies

48%Comedy

40%Gaming

Five different native independent YouTube creators have hit

New online video genres are gaining traction:

1 MILLION

213 hours

of mobile video will be watched per second by the end of 2016

subscribers


Source: Press releases; Think with Google.

Case study: Niche content player that made it big


CHUCHU TV is a children’s YouTube channel serving as an entertainment portal as well as learning resource for kids

Source: Think with Google, Vidooly, YouTube.

Chuchu TV scaled rapidly and garnered more than 2 Mn subscribers within the first 24 months

10 Ksubscribers

100 Ksubscribers

1 Mnsubscribers

2 Mnsubscribers

Chuchu TV is India's 3rd most subscribed YouTube channel with more than 8.5 Mn subscribers. It is ranked 251 globally in

terms of YouTube subscribers

The YouTube channel has amassed ~8 Bn views with just 148 video uploads and is

ranked 42 globally in terms of viewership – more than star channels like David

Guetta and Enrique Iglesias

USPs: Fresh content and unique characters, music and visuals

What does data abundance mean for a consumer?


1 GB data available for~INR 300 for 1 month

Past A possible future

15–30 GB data available for ~INR 300 for 1 month

200 songs downloads~14 hours of music streaming (30 minutes per day)

1 movie download3 serial episode downloads

4 hours of video streaming (8 minutes per day)

42 movie downloads100 serial episode downloads120 hours of video streaming (4 hours per day)

4 hours (8 minutes per day) 125 hours (4 hours per day)

6,000 songs downloads~400 hours of music streaming (13 hours per day)

Price

Music

Video

Videocalling

M O N T H L Y D A T A

Note: Illustrative - data consumption not additive above.

However there will continue to be significant variance in data consumption amongst different consumer segments

Even in a data abundant future where affordability and access are no longer

constraints, while the average data consumption per user would be significantly higher than today, we expect to see a wide variation in data consumption across different consumer segments. This is driven by two factors – amount of disposable time and online consumption preferences. For instance, young professionals who lead more fast paced lives would watch significantly lesser movies and TV series than students or middle-aged homemakers who are likely to have much more disposable time at hand. Likewise, consumption preferences would also be vastly different for each segment.


Middle-aged Homemakers

Profile

Primary online activities

Shopping

Social networking

Movies and TV series

Age 36 – 50 years:

InternetFamiliarity

Slow adopterswith rapid growthin usage with time

:

KeyObjective

Support householdactivities, relaxationand fun

:

Middle-agedProfessionals

Profile


Emails

Financial transactions

Browsing/search


InternetFamiliarity

Work-drivenadoption

:

KeyObjective

Support work-relatedactivities

:

UniversityStudents

Profile


Social networking

Instant messaging

Movies, sports and TV series


InternetFamiliarity

Grew up withinternet

:

KeyObjective

Maintain socialconnections, fun and study

:

YoungProfessionals

Profile


Emails

Browsing/search

Instant messaging


InternetFamiliarity

Early adopters with usage acrosswide applications

:

KeyObjective

Make personal andprofessional liveseasier

:

Seniors

Profile


Video calling

Social networking

Instant messaging

Age 51+ years:

InternetFamiliarity

Late adoptersdriven by the needto stay connected

:

KeyObjective

Stay in touch withfamily

:

Source: BCG proprietary data, BCG Analysis.


Middle-aged Homemakers

Profile


Shopping

Social networking

Movies and TV series


InternetFamiliarity

Slow adopterswith rapid growthin usage with time

:

KeyObjective

Support householdactivities, relaxationand fun

:

Middle-agedProfessionals

Profile


Emails

Financial transactions

Browsing/search


InternetFamiliarity

Work-drivenadoption

:

KeyObjective

Support work-relatedactivities

:

UniversityStudents

Profile


Social networking

Instant messaging

Movies, sports and TV series


InternetFamiliarity

Grew up withinternet

:

KeyObjective

Maintain socialconnections, fun and study

:

YoungProfessionals

Profile


Emails

Browsing/search

Instant messaging


InternetFamiliarity

Early adopters with usage acrosswide applications

:

KeyObjective

Make personal andprofessional liveseasier

:

Seniors

Profile


Video calling

Social networking

Instant messaging

Age 51+ years:

InternetFamiliarity

Late adoptersdriven by the needto stay connected

:

KeyObjective

Stay in touch withfamily

:

THE EXPLODING LAVA

Re-imagining the Indian economy

India’s internet economy expected to double to become~USD 250 Billion by 2020 – ~7.5% of the country’s GDP

Digital is quickly becoming a core part of most businesses...


A consumer on the internet can...

Find online

Buy online, consume offline

Buy online, consume online

Digitaladvertising

Total spend on digital advertising (e.g. Google's

ad revenue)

e-Commerce

Includes physical goods (Amazon), travel and hospitality (Yatra) and services (Urbanclap,

Uber etc.)

Media and entertainment,

e-Health,Digital education,Gaming, Others

(apps, e-books etc.)

Traditionally, the use of internet was largely limited to information dissemination and

effective communication. Over time however, this has significantly evolved – consumers can now find, buy and even consume products and services online. For instance, search engines like Google and Bing allow users to discover information on the web. E-commerce platforms like Amazon, Flipkart and Snapdeal allow users to find as well as buy products physically delivered to the doorstep, while other platforms like Uber, Ola and Urbanclap serve as service discovery and offline delivery portals. OTT players on the other hand, like Hotstar, Netflix and Voot, not only offer online discovery but also consumption in the form of digital content. As a consequence of this digital pervasiveness, businesses in almost all industries are going digital.

... and a key contributor to India’s GDP

The Exploding Lava 35

Internet economy as a percentage of 2016 GDPGDP %

12.48.0

6.95.7

5.0

5.65.4

5.3

4.24.0

3.83.7

3.63.5

3.43.3

2.82.5

2.42.3

UKSouth Korea

ChinaEU-27

India

JapanUSA

G-20

MexicoGermany

Saudi ArabiaAustraliaCanada

ItalyFrance

ArgentinaRussia

South AfricaBrazil

TurkeyIndonesia 1.5

Source: Economist Intelligence Unit; Organisation for Economic Co-Operation and Development (OECD); Country stastical agencies; BCG Analysis.


2016

2020

USD Billion

215–265

100–1305% of GDP

7.5% of GDP

India’s internet economy is expected to double to become ~USD 250 Billion by 2020

37The Exploding LavaThe Exploding Lava 37

Source: Industry reports (NASSCOM, CII, Gartner, IDC, PQ Media), secondary research, BCG proprietary data, BCG Analysis.

Travel, digital payments, digital learning,cab services, movie tickets, food delivery

Consumer electronics, apparels,FMCG, luxury, appliances, grocery

Online advertising, classifieds, digital music,e-books, mobile games and paid apps

Smartphones – 4G and 3G, PCs,tablets, laptops and feature phones

Mobile connectivity, fixed connectivity– broadband

Government IT infrastructure spending,corporate spending on devices, telecom

2020

Key components

2016

215–265USD Billion

100–130USD Billion

e-Commerce andfinancial services

e-Commerce products

Digital media and advertising

Devices

Connectivity

Private and Govt. infrastructure spend

15-20

10-15

20-25

8-10

45-55

2-3

40-50

45-50

30-40

45-55

50-60

5-8


India has hitherto been a cash heavy economy, with almost 80% transactions being carried

out in cash. This is not only way behind mature economies like UK, Australia, US and Germany where cashless transactions account for 70–90% transactions, but also other emerging economies like China and Brazil where over 50% transactions are cashless today. The recent demonetisation however has tremendously boosted digital payments, creating traceability and leapfrogging adoption by almost 2 years. For instance, in November 2016 Paytm recorded 7 Mn transactions in a single day, more than the average number of transactions on credit and debit cards combined in a day at the time in India.

Source: BCG-Google Digital Payments 2020.

% digital transactions

Base Scenario - based on earlier projections

Disruptive Scenario - incorporating the impact of demonetization


Select deep-dive: With the dual impact of demonetization and digital adoption, India could have up to 30–40% digital transactions by 2020

25–30%

2020E(Base

Scenario)

30–40%

2020E(DisruptiveScenario)

1%

2005

5%

2010

13%

2015

1. Includes POS transactions through both credit and debit cards.Source: RBI data on bank credit and deposits of scheduled commercial banks, 2016, BCG Analysis.

The Exploding Lava 39

Demonetization doubled monthly POS transactions, leapfrogging growth by ~24 monthsAverage number of POS transactions per day (Mn)

Apr’15

4.6

Aug’16

6.9

Sep’16

6.8

Oct’16

7.4

Nov’16

11.1

Dec’16

17.1

Jan’17

14.2

Feb’17

12.3

Select deep-dive: Digital is making in-roads in the education space helping address multiple challenges


Managing students in class

Limited teaching time/ time management

Inadequate teacher quality

Low access to opportunities/ information

Lack of personal attention in school and after school due to large class size and insufficient teacher bandwidth

High academic and non-academic workload makes it challenging to spend necessary time on teaching content

Inability to attract/retain good quality teachers coupled with low motivation of teachers/poor qualifications

Lack of focus on non academic activities, counselling and low awareness of career options among students

Lack of platforms to identify development areas, predict performance and design development plan

Online tutoring and test prep (supplemental learning and virtual tuitions)

Adaptive learning

Games based learning

Smartclass (smart boards, digital content, lesson delivery platforms etc.)

Education tablets

Professional development (training)

School rating, aptitude testing and career counseling

Platform for parent-teacher communication and collaboration

Learning management systems

Education marketplace

Co

nten

t /

Del

iver

yIn

form

atio

n /

Pla

tfo

rm

The Exploding Lava

Smart class offerings in India offer passive delivery through the use of smart boards, projection device and digital content. Currently, there are 6 main service providers in India catering to 33,000 schools.

Educomp, Tata, Pearson

Constitutes 3 sub-plays: Online tuitions (where students choose the tutor), digital content (curriculum linked videos, interactive modules), and assessments (adaptive tests). Currently, freemium model is gaining traction among students.

Byju’s, Extramarks, Meritnation

Can be applied in K-12, tutoring and test prep segments and aims to create personalized learning paths adapting content to students’ knowledge level. Current product offerings in K-12 are largely for Reading and Maths skills.

Mindspark, Khan Academy, Snapwiz

2 major sub-plays: ‘edutainment’ tablets and ‘educational’ tablets. Edutainment tablets are designed for 2–10 years old and offer both educational and entertainment value, while education tablets are focused only on educational content.

Classpad, Eddy, Mobule

Entails training teachers on content, skills and pedagogy. Technology based offerings include online resource library for knowledge updation and pedagogical techniques, platform for collaboration, self learning courses etc. Gurug, Firki, Centa

Indian players have developed curriculum-based games and employ both B2B and B2C models. Consists of two segments: motion sensor based gaming and Interaction between tablet and physical play.

TinyApps, Nayi Disha, Convegenius

Information platforms currently provide rankings/reviews for institutions along aptitude matching. Players usually offer both school rating and aptitude testing options, but are focused mainly on one of the sub-plays.

Careers360, Shiksha, Mapmytalent

Communication platforms currently provide a channel to communicate with various stakeholders, e.g. broadcast option for messages, alerts (e.g. attendance tracking), interaction between students, parents and teachers, etc. Flinnt, Edsys, Uolo

Learning Management Solution (LMS) digitizes the entire education delivery and management process. Sub-plays include pure platform software, customizing and hosting, deployment and training.

Smartschool, Classteacher, Moodle

Offerings include: Offline product/ service listings (e.g. Tripadvisor), doubt clarification platforms (e.g. Quora), communities for interaction (e.g. Facebook), product price comparison across providers (e.g. savings.com).

Edukart, eschoolbuddy, Schoolkart

Key Players

41

Beyond economic impact, digital has several citizen-centric social benefits

For long, Indian businesses have faced three challenges in setup and scaling: Information asymmetry and prevalence of middlemen, Need for local infrastructure to scale and primarily cash based business transactions. Technology led solutions are now allowing businesses to break these barriers.

Seamless financial transaction support through secure and standardized digital payments infrastructure

Greater and faster scale with minimum financial investments Going online allows wider reach in minimum time and cost.

Rural empowerment and fair play Online price discovery eliminates the need for middlemen preventing exploitation of the poor. Farmers can access real-time information (e.g. weather, crop quality) and market their produce.

Livelihood Enhanced ease of doing business

Consumption Greater access to services and products

Low resource per capita and economic constraints have limited the availability and quality of services like healthcare and education beyond large cities. Digital disruption is fundamentally transforming the cost and process of service delivery enabling reach.

E-commerce Online retail has brought a wide variety of products and services to the average Indian consumer across town-tiers and eliminated price inefficiencies in the system.

Banking penetration Mobile banking can potentially drive financial inclusion.

Healthcare E-health can help deliver primary healthcare at affordable prices.

Education Digital platforms can help deliver affordable quality education especially in rural India where physical education infrastructure is either non-existent or inadequate.


Citizen services Technology led reforms

Reforms aim to enhance citizens’ lives by targeting three key aspects – lower cost of services, reduced bureaucracy and curtailed corruption. Reforms also involve broadening the bouquet and quality of services while keeping the cost to the exchequer at a minimum. The transformative power of reforms has been greatly enhanced in recent times thanks to modern tools. Reforms through the effective use of technology have the potential to break the ‘iron triangle’ of Affordability, Access and Quality for the first time. The Jan Dhan Yojana has brought the marginalised members of the population into the banking system while Aadhaar has given billions of Indians a digital identity. The telecom revolution places India among leading internet nations providing ubiquitous high speed connectivity. With a strong technology foundation, India can now target citizen-centric reforms in critical areas.

Government-citizen interface• Easy access to public services, e.g. passport application,

cash transfers etc.

• Increase in government responsiveness and transparency, e.g. access to public information

• Inclusive governance inviting public opinion

Public distribution system• Online direct-to-account disbursement of entitlements

plugging systemic leakages and minimizing corruption• Robust authentication of consumers to ensure fraud

detection and identifying “ghost beneficiaries”

Individual autonomy• Internet lends a convenient channel for free expression• Pillar of democracy as divergent opinions get to be

heard

Enhanced security for citizens• Central database of crimes, missing persons etc. can aid

inter-state cooperation• Escalation and emergency response can be expedited

by a connected law enforcement workforce• Enhanced surveillance can help pick up early signals and

mitigate crime – e.g. cyber security

43The Exploding Lava

Adapting to change – for instance, the impact on jobs – will be critical to digital transformation


Increased automationRapid technological advancement in processing power,

AI, advanced robotics, autonomous control systems and other technologies minimizing manual labour and

repetitive roles

New ways of workingIncreased flexibility in terms of work timings and

location mobility enabled by technology to unlock higher productivity – allowing people to optimize work

life, diversify income streams and be more effective

For example

Under Uber’s model, drivers can optimize their income by only working during peak hours, allowing them to make the same salary as other taxi drivers even while working less hours. On an average, UberX drivers in the US work 4 hours a day and make ~1.6x the hourly salary of a taxi driver.

For example

Machine compliance managers, automated systems experts, virtual reality designers etc. and other cognitive roles will emerge from increased automation. Demand for routine tasks such as information processing, vehicle operations, handling and moving objects etc., is expected to diminish.

Note: For Uber, average pay across 6 major US cities considered. Source: Uber Driver Partner Statistical Report, Press releases, BCG Analysis.

45The Exploding Lava

Emerging business modelsNew business models leveraging

technology will create new job opportunities as well as give impetus to entrepreneurial

activities by lowering entry barriers

Leading to...

Creation of jobs Brand new job categories with focus on cognitive skills, empathy and human-machine interface will emerge over the coming decades as technology change introduces new needs

Destruction of jobs Jobs that predominantly involve routine and manual activities have the highest likelihood of being completely automated

Augmentation of jobs Jobs with both routine and non-routine tasks will be augmented – automating routine tasks will allow workers to multi-task and focus on non-routine aspects

For example

Through a platform business model, Airbnb is able to connect travelers to homeowners without itself owning any rooms. This has facilitated the company to scale at an incredibly fast rate at zero marginal cost. New technology may allow companies to reach scale with fewer employees and low infrastructure costs.

Thoughts from key industry players


Price and convenience are the two biggest drivers for consumers to adopt online travel booking. While discounting induces trial, long term customer engagement can only be ensured through consistently great customer experience. As we scale up and make inroads into smaller towns, satisfactorily executing fulfillment and providing service assurance, e.g. for lesser known hotels, is the next big challenge for sustaining long term growth.

— Deep Kalra, Chairman & Group CEO, Makemytrip

Creating awareness and establishing user trust are currently the key challenges in the online education space. Once adoption is induced, we have found engagement rates to be phenomenal, with free users spending ~30 minutes per day v/s ~90 minutes per day for subscribers. The need for quality academic content is even more pronounced in the non-metros where alternate avenues are limited.

— Zishaan Hayath, Co-founder, Topplr

We expect digital adoption to have a disproportionate impact on B2B businesses, directly impacting the GDP. India is set to have globally the most seamless and frictionless financial system, which could potentially double the amount of lending in the near future.

— Alok Mittal, Co-founder & CEO, Indifi Technologies Pvt. Ltd.

A lot of collaboration will be required amongst players in the digital ecosystem in order to integrate solutions for different consumer needs. This becomes even more challenging in the financial space where different entities are governed by different regulatory bodies. Formalization of the small transaction economy would be the other big unlock for digital payments in the country.

— Shinjini Kumar, CEO, Paytm Payment Bank

2G, 3G, 4G: Wireless technologies – ‘G’ stands for generation of the mobile network. A higher number before the ‘G’ indicates more advanced technology, implying higher efficiency through the wireless network.

Adaptive learning: An educational method which uses computers as interactive teaching devices, and to orchestrate the allocation of human and mediated resources according to the unique needs of each learner.

Content on demand: Systems which allow users to select and watch/listen to video or audio content such as movies and TV shows when they choose to, rather than having to watch at a specific broadcast time.

Demonetization: Act of stripping a currency unit of its status as legal tender. The term has been used in this report with reference to the demonetization of INR 500 and INR 1,000 currency notes in India in November 2016.

E-commerce: Commercial transactions conducted electronically on the internet.

Gross Domestic Product (GDP): Monetary value of all the finished goods and services produced within a country’s borders in a specific time period.

Gross National Income (GNI): Total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP) plus factor incomes earned by foreign residents, minus income earned in the domestic economy by non-residents.

High speed internet (mobile broadband): Internet service with speed greater than 512 Kbps.

Internet economy: Cumulative spend on every layer of the digital stack, which comprises of private and government spending on internet related services, connectivity, devices and hardware, digital payments, and services (applications).

Over-the-top (OTT): Delivery of film and TV content via the internet, without requiring users to subscribe to a traditional cable or satellite pay-TV service.

Smart board: Interactive whiteboard that uses touch detection for user input.

GLOSSARY

The Boston Consulting Group publishes other reports and articles on related topics that may be of interest to senior executives. Recent examples include:

Decoding the Digital Opportunity in IndiaA report by The Boston Consulting Group in association with the Retailers Association of India (RAI), February 2017

Unleashing Technology, Media and Telecom with Digital TransformationA report by The Boston Consulting Group, October 2016

Acting on the Digital ImperativeA report by The Boston Consulting Group, September 2016

How Telcos Can Become Video’s Next Big StarAn article by The Boston Consulting Group, June 2016

The New News on Print Media TransformationAn article by The Boston Consulting Group, June 2016

Unlocking the Potential of Consumer Digital PaymentsAn article by The Boston Consulting Group, October 2015

The Growth of the Global Mobile Internet EconomyA report by The Boston Consulting Group, February 2015

India@Digital Bharat: Creating a $200 Billion Internet EconomyA report by The Boston Consulting Group in association with Internet and Mobile Association of India (IAMAI), January 2015

The Mobile Revolution: How Mobile Technologies Drive a Trillion-Dollar ImpactA report by The Boston Consulting Group, January 2015

FOR FURTHER READING

ABOUT THE AUTHORSNimisha Jain is a Partner and Director in the New Delhi office of The Boston Consulting Group and leads the Centre for Consumer Insights for Emerging Economies. Karishma Bhalla is a Partner and Director in the Mumbai office of The Boston Consulting Group and is an expert in the telecommunication and media spaces. Kanika Sanghi is a Principal in the Mumbai office of The Boston Consulting Group and heads the Centre for Consumer Insights in India. Shaveen Garg is a Principal in the New Delhi office of The Boston Consulting Group and has extensive experience in devices and IT services. Sandeep Dalmia is a Principal in the New Delhi office of The Boston Consulting Group and core to the Greenshoots (BCG’s start-up accelerator) leadership team for India with expertise in digital. Dhruv Shah is an integral part of the Telecom, Media and Technology (TMT) practice of The Boston Consulting Group in India.

ACKNOWLEDGMENTSThis report has been prepared by the Boston Consulting Group. The authors would like to thank Prasanto K Roy and Alok Mittal from The Indus Entrepreneurs (TiE) for their support and guidance while developing this report. The authors would also like to acknowledge the contribution of Vishal Jalan, Abhinav Duggal, Mohit Kataria, Tanya Gupta, Nevaid Aggarwal, Arunabh Singh, Antara Raychaudhury, Anubhav Singh and Saurav Mohanty for their assistance in writing this report. A special thanks to Maneck Katrak and Jasmin Pithawala for managing the marketing process; Jamshed Daruwalla, Saroj Singh and Kamal Ghanghas for their contribution towards design and production of the report.

FOR FURTHER CONTACTIf you would like to discuss the themes and content of this report, please contact:

NIMISHA JAINHead, CCI Emerging Markets BCG, New Delhi+91 124 459 [email protected]

KARISHMA BHALLAPartner and DirectorBCG, Mumbai+91 22 6749 [email protected]

PRASANTO K ROYHead, Internet Mobile and e-Commerce Council, NASSCOMCore Team India Internet Day +91 98100 [email protected]

ALOK MITTALEntrepreneur and InvestorBoard Member TiE Delhi – NCRCo-Founder, Indian Angel Network+91 98106 [email protected]

NOTE TO THE READER

India Internet Day is a leadership conference that looks at setting conversations around a long term vision for the industry. The idea of India Internet Day is to look at paradigm shifts in the internet industry globally and what that means for the internet business in India. While based in India, the event seeks to have a strong global connect. The forum also explores the shape of things to come while connecting with the established players, outliers and experimenters - making the forum as a point of reference. In this our fifth year, #iDay2017 goes beyond the predefined boundaries and explore issues of far more relevance and impact.

2016 was a reboot year for entrepreneurs. As money dried and investors kind of withdrew, a sense of maturity set in. A maturity that brought with it knowledge that investors are looking at sustainable businesses and investments are hard earned. Growth and funding come to innovators who create sustainable differentiators and also adequate barriers to entry.

As the year progressed, rules of the road ahead seemed to have changed dramatically. What appeared to be providence for a few also holds opportunities therein for many others. As the demonetisations turns 6 months and GST is set to bloom, as unique sustainable models backed by innovative disruptors become the ask of the day, #iDay 2017 promises to go beyond prosaic and unravels the gamut of opportunities this new path presents. #iDay shakes the fatigue of 2016, clears the air around multiple unknowns to explore issues of far more relevance and impact for entrepreneurs looking building their businesses.

© The Boston Consulting Group, Inc. 2017. All rights reserved.

For information or permission to reprint, please contact BCG at:E-mail: [email protected]: +91 22 6749 7001, attention BCG/PermissionsMail: BCG/Permissions The Boston Consulting Group (India) Private Limited 14th Floor, Nariman Bhavan Nariman Point Mumbai 400 021 India

Please contact TiE at:Website: www.delhi.tie.orgFixed: +91 120 406 6500 Mob: +91 98100 78395Mail: TiE Delhi – NCR Unit 1102 Advant IT Park Plot 7, Sector 142 Noida 201 305 India

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04/17

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